Farm Credit System (FCS) lenders enjoy unfair competitive advantages over rural community banks, leveraging their tax and funding advantages as government sponsored enterprises (GSEs) to siphon the best loans from community banks’ loan portfolios. The FCS’s abusive tactic of undercutting market pricing to obtain the best loans jeopardizes the viability of many community banks and the economic strength of the thousands of rural communities they serve.
ICBA strenuously opposes the Farm Credit Administration’s (FCA’s) initiative to allow FCS to engage in non-farm financing labeled as investments or investment bonds. This initiative, which the FCA is implementing via regulatory process, is a successor to the “Rural Community Investments” proposal, which was withdrawn in November 2013.
ICBA further rejects legislation proposed by the Farm Credit Council to allow blanket approval authority of these FCS “investments” without FCA’s case-by-case review and approval.
ICBA opposes allowing the FCS lenders to become the equivalent of rural banks with powers to establish checking and savings accounts, take deposits, or establish a consumer-oriented deposit insurance plan within the FCA. FCS lenders must not have access to the Federal Reserve’s ACH system for clearing electronic credit and debit transfers.
ICBA opposes expansion of FCS authorities and supports legislative and regulatory provisions to ensure FCS’s adherence to its historical mission of serving bona fide farmers and ranchers.
Community Banks and the Rural Economy. Thousands of community banks serve rural areas. As of the first quarter 2019, there were 1,315 “farm” banks representing nearly one-quarter of all FDIC-insured institutions. Agriculture loans held by FDIC-insured institutions totaled $184 billion. Community banks hold nearly 70 percent of total agriculture loans from the banking sector. Community banks of less than $10 billion in asset size hold approximately 80 percent of all banking sector agricultural loans. Approximately 3,000 community banks have agriculture-related portfolios of at least $5 million. Community banks are four times more likely to operate offices in rural counties. Community banks remain the only banking presence in more than 600 counties (nearly 20 percent of all U.S. counties) and hold the majority of banking deposits in rural counties.
Farm Credit System. FCS lenders enjoy unfair advantages over rural community banks and leverage their tax and funding advantages as government sponsored enterprises (GSEs) to siphon the best loans away from community banks. The FCS is the only GSE that competes directly against private sector lenders at the retail level. FCS was chartered by Congress to serve bona-fide farmers and ranchers and a narrow group of farm-related businesses that provide on-farm services. However, in recent years FCS has sought numerous non-farm lending powers in an effort to compete directly with commercial banks for non-farm customers.
FCS’s complicit regulator, the FCA, has also sought to expand FCS activities through regulatory initiatives such as “investment bonds” and the “Rural Community Investments” regulation finalized in 2018. These initiatives provide authority for non-farm lending under the guise of “investments,” even though such lending goes beyond the constraints of the Farm Credit Act. Additionally, the Farm Credit Council has proposed replacing the FCA’s prior approval of these “investments” with blanket authority for FCS lenders to approve any investment without FCA’s up-front review. ICBA opposes the Farm Credit Council’s legislative proposal.
Recent proposals to allow the FCS to become the equivalent of rural commercial banks would devastate thousands of rural community banks both in urban and rural and remote areas. Such proposals are another FCS-initiative to utilize GSE tax and funding advantages to expand beyond statutory lending constraints, ignore FCS’s GSE mission of serving actual farmers and ranchers, and dramatically increase FCS institutions’ profits at the expense of tax-paying, private sector community banks.
Congress should reform and refocus the FCS’s authorities in order to limit their non-farm lending activities, including through “investments” authorities and “similar entity” loans to large corporations, to ensure these authorities do not circumvent existing statute or go beyond the intent of Congress; prohibit predatory, below-market pricing of loans; equalize tax treatment between community banks and FCS lenders; and changing the makeup of the FCA board.
Staff Contact: Mark Scanlan
Council on Environmental Quality
Re: Docket ID: CEQ-2019-0003, Council on Environmental Quality (CEQ) / Federal Register / Vol. 85, No. 7 / Friday, January 10, 2020 / Proposed Rules / page 1684
The Independent Community Bankers of America (ICBA), is submitting this letter in response to the Council on Environmental Quality’s (CEQ) proposed rule to update its regulations for implementing the procedural provisions of the National Environmental Policy Act (NEPA).
The proposed rule states the CEQ has not comprehensively updated its regulations since their promulgation in 1978, more than four decades ago. The proposed rule is intended to modernize and clarify NEPA regulations to facilitate more efficient, effective, and timely NEPA reviews by Federal agencies, reduce paperwork and delays, implement court rulings and promote better decisions consistent with national environmental policies and to clarify the regulations in view of over thirty guidance documents issued by the CEQ over the years.
ICBA agrees with these goals. As the proposed rule states, “implementation of NEPA and the CEQ regulations can be challenging, and the process can be lengthy, costly, and complex.” Many bankers would also concur with the PR’s statement: “In some cases, the NEPA process and related litigation has slowed or prevented the development of new infrastructure and other projects that required Federal permits or approvals.”
This is unfortunate since the original goals of CEQ regulations were to reduce paperwork and delays and to promote better decisions consistent with national environmental policy.
Our primary focus in terms of this proposal regards reducing the impact or use of NEPA for government guaranteed lending. ICBA strongly supports the PR’s recommendation to “exclude as non-major Federal actions the farm ownership and operating loan guarantees provided by the Farm Service Agency (FSA) of the U.S. Department of Agriculture pursuant to 7 U.S.C. 1925 and 1941 through 1949, and the business loan guarantee programs of the Small Business Administration (SBA).”
This exclusion is particularly important since the private sector provides the funds for these programs, not the government. As the rule notes, government funds are only expended in the case of loan defaults. Loan defaults under these programs are negligible. We also agree with the rule’s stated rationale: “FSA does not control the bank, or the borrower; the agency does not control the subsequent use of such funds and does not operate any facilities. In the event of a default, properties are sold, and FSA never takes physical possession of, operates, or manages any facility.”
Consistent with the exclusion discussed above, ICBA believes the final regulations should clarify the exclusion should apply to all refinancings of guaranteed loans as well even if there is ground disturbance involved. As the rule states, “courts have determined that NEPA does not require the preparation of an EIS for actions with minimal Federal involvement or funding.” The final rule should therefore exclude the need for any significant environmental analysis and/or EIS for the origination or refinancing of USDA and SBA guaranteed loans.
USDA’s current interpretation of NEPA requirements has resulted in blocking loan guarantees when the applicant seeks to refinance and there is ground disturbance involved, apparently even if the ground disturbance is minimal. For example, the requirement to undergo the NEPA process could apply to a producer seeking a loan to modernize a dairy parlor in an effort to become more efficient. Or the NEPA process as currently interpreted could apply to a farmer installing fencing or grain bins or similar common farming or ranching activities. While there is no actual adverse environmental impact resulting from these activities, the complexities and time delays involved often block the applicant from obtaining financing.
We believe the exclusion as a non-major Federal action under NEPA should apply to all NEPA requirements whenever a guaranteed loan is involved due to the fact the loan funds are provided by the private sector and the government only steps in with a guarantee when a default is involved.
For very large loans for a particular project, if deemed necessary based on the potential for major environmental impacts, lenders or borrowers could submit a one-page “low doc” form certifying their confidence the loan purposes will not have a major detrimental impact on the environment. The low doc form would therefore be the basis of precluding any required environmental analysis or studies under NEPA. Smaller loans by their nature have less likelihood for any significant adverse environmental impacts and therefore should not need to undergo environmental assessments and/or studies.
The proposed rule states that although an EIS is supposed to be completed within a one-year time frame, the median time frame for reaching a decision on a project is 3.6 years and that twenty-five percent of EIS’s take more than six years for a decision to be made.
The regulations should set shorter and more practicable timeframes while requiring government agencies to reach a decision within the timeframe established for the project’s level of complexity and significance of impact. If there are mitigating circumstances, the timeframe could be extended for a particular project, but only once and not for more than twenty-five percent of the initial timeframe.
Otherwise, the project should be automatically approved as the government was not able to show a significant environmental impact within the established timeframe.
Thank you for the opportunity to comment on this proposed rule. As referenced in our letter, ICBA believes the intent of NEPA can be accomplished in a much more efficient way while still protecting our valuable natural resources and our environment.
Ultimately, these regulations should not unnecessarily impede the normal activities of borrowers and the community banks that finance them simply because they are seeking guaranteed loans or refinancing of guaranteed loans to improve their agricultural and small business enterprises.
Should you wish to discuss this letter’s contents please contact [email protected].
Sr. Vice President, Agriculture and Rural Policy